What Was It All For?

Veterans Have Finally Turned on America’s Endless Wars

by Danny Sjursen

AntiWar.com (July 15 2019)

Zero Hedge (July 16 2019)

It is undoubtedly my favorite part of every wedding. That awkward, but strangely forthright moment when the preacher asks the crowd for any objections to the couple’s marriage. No one ever objects, of course, but it’s still a raw, if tense, moment. I just love it.

I suppose we had that ubiquitous ritual in mind back in 2007 when Keith – a close buddy and fellow officer – and I crafted our own plan of objection. The setting was Baghdad, Iraq, at the start of the “surge” and the climax of the bloody civil war the US invasion had unleashed. Just twenty-three years old and only eighteen months out of the academy, my clique of officers had already decided the war was a mess, shouldn’t have been fought, and couldn’t be won.

Me and Keith, though, were undoubtedly the most radical. We both just hated how our squadron’s colonel would hijack the memorial ceremonies held for dead troopers – including three of my own – and use the occasion of his inescapable speech to encourage we mourners to use the latest death as a reason to “rededicate ourselves to the mission and the people of Iraq”. The whole thing was as repulsive as it was repetitive.

So it was that after a particularly depressing ceremony, perhaps our squadron’s tenth or so, that we hatched our little defiant scheme. If (or when) one of us was killed, the other promised – and this was a time and place where promises are sacred – object, stand up, and announce to the colonel and the crowd that we’d listen to no such bullshit at this particular ceremony, not this time. “Danny didn’t believe in this absurd mission for a minute, he wouldn’t want his death to rededicate us to anything”. Keith would have said! Luckily it never came to that. We both survived, Keith left the army soon after, and I, well, toiled along until something snapped and I chose the road of public dissent. Still, I believe either of us would have actually done it – even if it did mean the end of our respective careers. That’s called brotherhood … and love.

I got to thinking on that when I read a story this week which was both disturbing, refreshing, and sickening all at the same time. A major opinion poll’s results were released which demonstrated that fully two-thirds of post 9/11 veterans now think the wars in Iraq and Afghanistan “weren’t worth fighting”. That’s a remarkable, and distressing, statistic and one that should give America’s president, legislators, media, and people as a whole, serious pause. Not that it will, mind you, but it should! It’s doubtful that US military combat vets – who are more rural, southern, and conservative than the population at large – have ever so incontrovertibly turned on war, at least since the very end of Vietnam.

On one level, I felt a sense of vindication for my longtime antiwar stances when I read about the study – in the Military Times no less. But that was just ego. Within minutes I was sad, inconsolably and completely melancholy. Because if, as a “filibuster-proof” majority of my fellow veterans (and maybe even our otherwise unhinged president) believes, the Iraq and Afghan wars weren’t worth the sacrifice, then consider the unsettling implications. It would mean, for starters, that the US flushed nearly $5.9 trillion in hard-earned taxpayer cash down the toilet. It means that 7,000 American soldiers and upwards of 244,000 foreign civilians needn’t have lost their ever precious lives. Hundreds of thousands more might not have been injured or maimed. 21 million people wouldn’t have become refugees. The world, so to speak, could’ve been a safer, better place.

Those ever-so-logical conclusions should dismay even the most apathetic American. They should make us all rather sad, but, more importantly, should inform future decisions about the use of military force, the role of America in the world, and just how much foreign policy power to turn over to presidents. Because if we, collectively, don’t learn from our country’s eighteen-year, tragic saga, then this republic is, without exaggeration, finished, once and for all. Benjamin Franklin, that confounding Founding Father, wasn’t sure the American people could be trusted to “keep” the republic he and other elites formed. It’d be a devastating catastrophe to prove him right, especially in this time of rising right-wing, strongman populism in the Western world.

So consider this a plea to Congress, to the corporate media establishment, and to all of you: when even traditionally more conservative and martial military veterans raise the antiwar alarm – listen! And next time the American war drums beat, and they undoubtedly will, consider this article encouragement to do what Keith and I promised way back when. Object! Refuse to fight the next ill-advised and unethical war. Remember: to do so demonstrates brotherhood and love. Love of each other and love of country …

_____

Danny Sjursen is a retired US Army officer. He served combat tours with reconnaissance units in Iraq and Afghanistan and later taught history at his alma mater, West Point. He is the author of a memoir and critical analysis of the Iraq War, Ghostriders of Baghdad: Soldiers, Civilians, and the Myth of the Surge (2015).

https://www.zerohedge.com/news/2019-07-16/what-was-it-all-veterans-have-finally-turned-americas-endless-wars

Doubling Down

The Military, Big Bankers and Big Oil are Not in Climate Denial

They Are in Control and Plan to Keep It That Way

by Richard Moser

CounterPunch (July 05 2019)

Drawing by Nathaniel St Clair

Capitalism, militarism, and imperialism are disastrously intertwined with the fossil fuel economy … A globalized economy predicated on growth at any social or environmental costs, carbon dependent international trade, the limitless extraction of natural resources, and a view of citizens as nothing more than consumers cannot be the basis … for tackling climate change … Little wonder then that the elites have nothing to offer beyond continued militarisation and trust in techno-fixes.

– Nick Buxton and Ben Hayes {1}

The ruling class may be an utter failure but that is not stopping them taking aggressive action on climate change. Their chief concern: maintaining power, control, and profits at all costs.

The plan is well underway and it sure ain’t the Green New Deal. Just imagine a more extreme version of the world that already exists: where healthcare is rationed; where wealth inequality strangles democracy; where austerity is a weapon of class warfare; where millions die prematurely from toxins in air and water; where war and incarceration is the solution of choice; where people are rounded up in concentration camps; where corporations rule unchallenged; where extreme weather wrecks havoc in an expanding circle of misery. The only new thing about their solution is the stench of fascism that grows ever stronger and more odious.

The Bosses Want More of the Same

When Trump and the Republicans deny climate change, when Pelosi, Pallone, Perez, Biden, and Obama join with Trump in sabotaging the Green New Deal or dismissing climate action as too expensive, too dreamy, not practical, or too pure – they are all bold-faced liars and frauds.

The Republicans know full well that their partners in crime – oil companies, bankers, and the military brass have known about climate change for decades. And, the corporate Democrats know that these same powerful players they too represent already have a risky plan to deal with climate change. From their shared perspective, even the Democrat’s Green New Deal, despite its weaknesses, must be marginalized since it competes with the establishment’s plans for our future.

Framing Climate Change

To maintain power they need to limit our thinking. The two most important narratives imposed on us are climate change as a “threat to national security” and as a “business opportunity” – the twin rationales for military and corporate power. They want to focus us on how to manage the crisis, profit from it, or adapt to it, instead of opposing it.

Once framed in this way the very institutions responsible for climate change can benefit from disaster while hiding their responsibility for creating the crisis. But the military-corporate management of the crisis will undoubtedly follow the same principles that created the crisis: the costs of pollution, adaptation, endless growth, and war won’t appear in the corporate ledger. Military budgets will only grow larger. The costs will be “externalized” and paid by the suffering of everyday people.

The 63 million Americans currently exposed to unsafe drinking water and the 200,000 (according to an MIT study) in the US that currently die prematurely from air pollution are just a down payment. And the US is the wealthiest country in world history. The global figure for air pollution-related deaths is 5.5 million annually. The twenty million or so deaths from war since World War Two are a gross outstanding debt. How is that for adaptation and management?

How will our rulers plan to maintain control as the crisis deepens?

Plans? What Plans?

Unsurprisingly, the military plans to maintain its ambition for “full-spectrum dominance”. A 2014 report from the Department of Defense quotes former Defense Secretary Chuck Hagel who – having previously been on the Board of Directors of Chevron and Deutsche Bank – knows how to unite big oil, big banks, and big guns.

“Our coastal installations are vulnerable to rising sea levels and increased flooding, while droughts, wildfires, and more extreme temperatures could threaten many of our training activities … A baseline survey to assess the vulnerability of the military’s more than 7,000 bases, installations, and other facilities is nearly complete”, Hagel said. “In places like the Hampton Roads region in Virginia, which houses the largest concentration of US military sites in the world, we see recurrent flooding today, and we are beginning work to address a projected sea-level rise of 1.5 feet over the next twenty to fifty years …”

They want us to forget that it has now been proven beyond doubt that the military is the world’s largest consumer of fossil fuels and largest polluter. War will continue, climate crisis be damned. Elizabeth Warren’s 2019 policy statement and the bipartisan letter sent to Trump by over 100 Congress members urging Trump to make climate change a national security issue is more proof that war trumps climate. In truth, the military is caught in a crisis of its own making. As Desiree Hellegers puts it: “The US Military Poses a Significant Threat to the US Military” {2}.

While the pro-war media makes much of the military’s attempts to use alternative energy, the Pentagon failed to reach its puny 2014 goal of five percent renewable.

Similarly, Obama’s 2009 stimulus package cancelled out the effects of small green spending with an “all of the above” approach, including money for “clean coal”, record oil production, and increased energy use. This pattern of “greenwashing” – minor green efforts masking major investments in fossil fuels is identical to the corporate approach.

The oil companies and big banks that make crazy money from fossil fuels also hide the truth by posing the problem as a question of proper management. Sharon Kelly reports the banker’s view of a new “business opportunity”:

“Scientific research finds that an increasing concentration of greenhouse gases … is warming the planet, posing significant risks to prosperity and growth of the global economy”, JPMorgan Chase Bank, Bank of America Corporation, Wells Fargo, Citibank, Goldman Sachs, and Morgan Stanley wrote in a 2015 statement. “As major financial institutions … we have the business opportunity to build a more sustainable, low-carbon economy and the ability to help manage and mitigate these climate-related risks”.

So how is it that the bankrollers of climate chaos, investing $1.9 trillion in fossil fuels just since the Paris Accords, also claim to “manage and mitigate these climate-related risks?”

According to the bankers, the problem with climate change is that it’s “posing significant risks to the prosperity and growth of the global economy”. What they will not say is that the global economy – which demands enormous fossil fuel production and consumption – is posing significant risks to the climate. The global shipping and aviation on which peak profit-making depends are, like the military, exempt from the Paris Accords. The bankers, generals, and politicians are protecting the sources of their power.

From the Gold Standard to the Oil Standard

What the bankers will not say is that billions of the dollars they trade in are “petrodollars” – as explained in this informative documentary video:
https://thefreethoughtproject.com/land-free-ranks-dead-west-fair-elections/ .

A forty-year back-room deal with the Saudis secretly recycled oil money back to the US. This deal essentially shifted the US dollar from the “gold standard” to the “oil standard”. According to Bloomberg:

The basic framework was strikingly simple. The US would buy oil from Saudi Arabia and provide the kingdom military aid and equipment. In return, the Saudis would plow billions of their petrodollar revenue back into Treasuries and finance America’s spending.

Buying oil in dollars is a form of imperial tribute other countries pay to the US – which is why the US insists all oil trading be in US currency. Iraq and Libia once traded oil in other currencies. Venezuela, Syria, Iran, Russia, and China still do. See?

Since oil props up the US Dollar, bankers have a direct interest in wars that prop up the fossil-fuel regime. It is highly unlikely that the US Dollar, the Military-Industrial-Complex, or the global corporate economy can live without its addiction to oil – whatever green capitalists imagine in their wildest dreams. Some contradictions simply cannot be overcome.

Representative Democracy is Dying. Long live Direct Democracy!

It’s “power to the people” or nothing. There is no middle ground. But we will be swamped along with the middle ground if we do not have real leverage and real power. The military, the oil companies, and the big banks have plans and power both. The Green Party’s Real Green New Deal is a solid plan, as are the guiding principles offered by DSA Ecosocialists, or Tulsi Gabbard’s OFF Act.

But, the straightest line to the power we need is not just good policy, more manifestos, analytical precision, or electoral politics (although those things might be helpful) – it’s the sloppy, contradictory, demanding work of organizing and direct democracy. The many efforts to protect water and confront infrastructure projects are leading the way. The Red Nation is a new voice telling classic political truths. Listen carefully. The “Red Deal” platform states:

This … will encompass the entirety of Indigenous America, which includes our non-Indigenous comrades and relatives who live here … We cannot expect politicians to do what only mass movements can do … A mass mobilization, one like we’ve never seen before in history, is required to save this planet. Indigenous movements have always been at the forefront of environmental justice struggles … The Red Deal is not a “deal” or “bargain” with the elite and powerful. It’s a deal with the humble people of the earth; a pact that we shall strive for peace and justice and that movements for justice must come from below and to the left.

“We cannot expect politicians to do what only mass movements can do … from below and to the left”. Truth. But how?

Whether you are base-building with workers or tenants, movement-building with the peace and environmental movements, or running electoral campaigns, the under-appreciated work of talking with, and listening to, everyday people is the fast track to fundamental change. Talking with everyday people is a revolutionary act. Acting with others is better yet.

A massive Harvard study tells us what we already suspect: we have the most dysfunctional, least democratic electoral system of any so-called “western democracy”. The collapse of real representation is a leading cause of crisis. To think that such a broken system can repair itself and then take on massive problems of its own making without an equally massive and equally disruptive popular movement is more than just wishful thinking – it is a profound disregard for history. Show me some evidence. How was the original New Deal created? The failure to allow moderate and popular reforms like universal health care does not bode well for government’s ability to act on climate and war – issues that strike right at the heart of the existing social order.

We have good blueprints. It’s vitally important to put demilitarization at the center of our efforts not just because the US empire is the world’s largest consumer of fossil fuels or because the same military is the enforcer of the global fossil fuel regime but because understanding the connections between war and climate changes clears the way for fusion and synergy between the environmental and peace movements and movements for economic justice.

But the real question – the unanswered question – is HOW? How do we move on the climate crisis? Can we build it from the bottom up? It sure isn’t coming from the top down. Can the Green New Deal become a revolutionary reform? Ask people what they think about the Green New Deal. Where it leads is up to us.

Notes:

{1} The best single source is a very well researched collection of essays The Secure and the Dispossessed: How the Military and Corporations are Shaping a Climate-Changed World edited by Nick Buxton and Ben Hayes. Find the quote on page 234.

{2} You can see much more of this misdirection by looking at this document: “Military and National Security Leaders Urge Robust New Course on Climate Change”. Or see Elizabeth Warren’s new plan for a green military.

https://www.counterpunch.org/2019/07/05/doubling-down-the-military-big-bankers-and-big-oil-are-not-in-climate-denial-they-are-in-control-and-plan-to-keep-it-that-way/

War Profiteers and …

… the Demise of the US Military-Industrial Complex

by Dmitry Orlov

https://cluborlov.blogspot.com (July 16 2019)

Within the vast bureaucratic sprawl of the Pentagon there is a group in charge of monitoring the general state of the military-industrial complex and its continued ability to fulfill the requirements of the national defense strategy. Office for Acquisition and Sustainment and Office for Industrial Policy (INDPOL) spend some $100,000 a year producing an Annual Report to Congress. It is available to the general public. It is even available to the general public in Russia, and Russian experts had a really good time poring over it.

In fact, it filled them with optimism. You see, Russia wants peace but the US seems to want war and keeps making threatening gestures against a longish list of countries that refuse to do its bidding or simply don’t share its “universal values”. But now it turns out that threats (and the increasingly toothless economic sanctions) are pretty much all that the US is still capable of dishing out – this in spite of absolutely astronomical levels of defense spending. Let’s see what the US military-industrial complex looks like through a Russian lens.

It is important to note that the report’s authors were not aiming to force legislators to finance some specific project. This makes it more valuable than numerous other sources, whose authors’ main objective was to belly up to the federal feeding trough, and which therefore tend to be light on facts and heavy on hype. No doubt, politics still played a part in how various details are portrayed, but there seems to be a limit to the number of problems its authors can airbrush out of the picture and still do a reasonable job in analyzing the situation and in formulating their recommendations.

What knocked Russian analysis over with a feather is the fact that these INDPOL experts (who, like the rest of the US DOD, love acronyms) evaluate the US military-industrial complex from a … market-based perspective! You see, the Russian military-industrial complex is fully owned by the Russian government and works exclusively in its interests; anything else would be considered treason. But the US military-industrial complex is evaluated based on its … profitability! According to INDPOL, it must not only produce products for the military but also acquire market share in the global weapons trade and, perhaps most importantly, maximize profitability for private investors. By this standard, it is doing well: for 2017 the gross margin (EBITDA) for US defense contractors ranged from fiftee to seventeen percent, and some subcontractors – Transdigm, for example – managed to deliver no less than 42 to 45%. “Ah!” cry the Russian experts, “We’ve found the problem! The Americans have legalized war profiteering!” (This, by the way, is but one of many instances of something called systemic corruption, which is rife in the US.)

It would be one thing if each defense contractor simply took its cut off the top, but instead, there is an entire food chain of defense contractors, all of which are legally required, no less, to maximize profits for their shareholders. More than 28,000 companies are involved, but the actual first-tier defense contractors with which the Pentagon places two-thirds of all defense contracts are just the Big Six: Lockheed Martin, Northrop Grumman, Raytheon, General Dynmics, BAE Systems and Boeing. All the other companies are organized into a pyramid of subcontractors with five levels of hierarchy, and at each level they do their best to milk the tier above them.

The insistence on market-based methods and the requirement of maximizing profitability turns out to be incompatible with defense spending on a very basic level: defense spending is intermittent and cyclical, with long fallow intervals between major orders. This has forced even the Big Six to make cuts to their defense-directed departments in favor of expanding civilian production. Also, in spite of the huge size of the US defense budget, it is of finite size (there being just one planet to blow up), as is the global weapons market. Since, in a market economy, every company faces the choice of grow or get bought out, this has precipitated scores of mergers and acquisitions, resulting in a highly consolidated marketplace with a few major players in each space.

As a result, in most spaces, of which the report’s authors discuss seventeen, including the Navy, land forces, air force, electronics, nuclear weapons, space technology, and so on, at least a third of the time the Pentagon has a choice of exactly one contractor for any given contract, causing quality and timeliness to suffer and driving up prices.

In a number of cases, in spite of its industrial and financial might, the Pentagon has encountered insoluble problems. Specifically, it turns out that the US has only one shipyard left that is capable of building nuclear aircraft carriers (at all, that is; the USS Gerald Ford is not exactly a success). That is Northrop Grumman Newport News Shipbuilding in Newport, Virginia. In theory, it could work on three ships in parallel, but two of the slips are permanently occupied by existing aircraft carriers that require maintenance. This is not a unique case: the number of shipyards capable of building nuclear submarines, destroyers, and other types of vessels is also exactly one. Thus, in case of a protracted conflict with a serious adversary in which a significant portion of the US Navy has been sunk, ships will be impossible to replace within any reasonable amount of time.

The situation is somewhat better with regard to aircraft manufacturing. The plants that exist can produce forty planes a month and could produce 130 a month if pressed. On the other hand, the situation with tanks and artillery is absolutely dismal. According to this report, the US has completely lost the competency for building the new generation of tanks. It is no longer even a question of missing plant and equipment; in the US, a second generation of engineers who have never designed a tank is currently going into retirement. Their replacements have no one to learn from and only know about modern tanks from movies and video games. As far as artillery, there is just one remaining production line in the US that can produce barrels larger than forty millimeters; it is fully booked up and would be unable to ramp up production in case of war. The contractor is unwilling to expand production without the Pentagon guaranteeing at least 45% utilization, since that would be unprofitable.

The situation is similar for the entire list of areas; it is better for dual-use technologies that can be sourced from civilian companies and significantly worse for highly specialized ones. Unit cost for every type of military equipment goes up year after year while the volumes being acquired continuously trend lower – sometimes all the way to zero. Over the past fifteen years the US hasn’t acquired a single new tank. They keep modernizing the old ones, but at a rate that’s no higher than 100 a year.

Because of all these tendencies and trends, the defense industry continues to lose not only qualified personnel but also the very ability to perform the work. INDPOL experts estimate that the deficit in machine tools has reached 27%. Over the past quarter-century the US has stopped manufacturing a wide variety of manufacturing equipment. Only half of these tools can be imported from allies or friendly nations; for the rest, there is just one source: China. They analyzed the supply chains for 600 of the most important types of weapons and found that a third of them have breaks in them while another third have completely broken down. In the Pentagon’s five-tier subcontractor pyramid, component manufacturers are almost always relegated to the bottommost tier, and the notices they issue when they terminate production or shut down completely tend to drown in the Pentagon’s bureaucratic swamp.

The end result of all this is that theoretically the Pentagon is still capable of doing small production runs of weapons to compensate for ongoing losses in localized, low-intensity conflicts during a general time of peace, but even today this is at the extreme end of its capabilities. In case of a serious conflict with any well-armed nation, all it will be able to rely on is the existing stockpile of ordnance and spare parts, which will be quickly depleted.

A similar situation prevails in the area of rare earth elements and other materials for producing electronics. At the moment, the accumulated stockpile of these supplies needed for producing missiles and space technology – most importantly, satellites – is sufficient for five years at the current rate of use.

The report specifically calls out the dire situation in the area of strategic nuclear weapons. Almost all the technology for communications, targeting, trajectory calculations and arming of the ICBM warheads was developed in the 1960s and 1970s. To this day, data is loaded from five-inch floppy diskettes, which were last mass-produced fifteen years ago. There are no replacements for them and the people who designed them are busy pushing up daisies. The choice is between buying tiny production runs of all the consumables at an extravagant expense and developing from scratch the entire land-based strategic triad component at the cost of three annual Pentagon budgets.

There are lots of specific problems in each area described in the report, but the main one is loss of competence among technical and engineering staff caused by a low level of orders for replacements or for new product development. The situation is such that promising new theoretical developments coming out of research centers such as DARPA cannot be realized given the present set of technical competencies. For a number of key specializations, there are fewer than three dozen trained, experienced specialists.

This situation is expected to continue to deteriorate, with the number of personnel employed in the defense sector declining eleven to sixteen percent over the next decade, mainly due to a shortage of young candidates qualified to replace those who are retiring. A specific example: development work on the F-35 is nearing completion and there won’t be a need to develop a new jet fighter until 2035~2040; in the meantime, the personnel who were involved in its development will be idled and their level of competence will deteriorate.

Although at the moment the US still leads the world in defense spending ($610 billion of $1.7 trillion in 2017, which is roughly 36% of all the military spending on the planet) the US economy is no longer able to support the entire technology pyramid even in a time of relative peace and prosperity. On paper, the US still looks like a leader in military technology, but the foundations of its military supremacy have eroded. Results of this are plainly visible:

• The US threatened North Korea with military action but was then forced to back off because it has no ability to fight a war against it.

• The US threatened Iran with military action but was then forced to back off because it has no ability to fight a war against it.

• The US lost the war in Afghanistan to the Taliban, and once the longest military conflict in US history is finally over, the political situation there will return to status quo ante with the Taliban in charge and Islamic terrorist training camps back in operation.

• US proxies (Saudi Arabia, mostly) fighting in Yemen have produced a humanitarian disaster but have been unable to prevail militarily.

• US actions in Syria have led to a consolidation of power and territory by the Syrian government and newly dominant regional position for Russia, Iran, and Turkey.

• The second-largest Nato power Turkey has purchased Russian S-400 air defense systems. The US alternative is the Patriot system, which is twice as expensive and doesn’t really work.

All of this points to the fact that the US is no longer much a military power at all. This is good news for at least the following four reasons.

First, the US is by far the most belligerent country on Earth, having invaded scores of nations and continuing to occupy many of them. The fact that it can’t fight any more means that opportunities for peace are bound to increase.

Second, once the news sinks in that the Pentagon is nothing more than a flush toilet for public funds, its funding will be cut off and the population of the US might see the money that is currently fattening up war-profiteers being spent on some roads and bridges, although it’s looking far more likely that it will all go into paying interest expense on federal debt (while supplies last).

Third, US politicians will lose the ability to keep the populace in a state of permanent anxiety about “national security”. In fact, the US has “natural security” – two oceans – and doesn’t need much national defense at all (provided it keeps to itself and doesn’t try to make trouble for others). The Canadians aren’t going to invade, and while the southern border does need some guarding, that can be taken care of at the state/county level by some good ol’ boys using weapons and ammo they already happen to have on hand. Once this $1.7 trillion “national defense” monkey is off their backs, ordinary American citizens will be able to work less, play more, and feel less aggressive, anxious, depressed, and paranoid.

Last but not least, it will be wonderful to see the war profiteers reduced to scraping under sofa cushions for loose change. All that the US military has been able to produce for a long time now is misery, the technical term for which is “humanitarian disaster”. Look at the aftermath of US military involvement in Serbia/Kosovo, Afghanistan, Iraq, Libya, Syria, and Yemen, and what do you see? You see misery – both for the locals and for US citizens who lost their family members, had their limbs blown off, or are now suffering from PTSD or brain injury. It would be only fair if that misery were to circle back to those who had profited from it.

Research credit: Alexander Zapolskis

https://cluborlov.blogspot.com/2019/07/war-profiteers-and-demise-of-us.html

MMT Primer – Blog #20 Responses

Budget Deficits and Saving, Reserves and Interest Rates – Part 2

by L Randall Wray

http://neweconomicperspectives.org (October 20 2011)

Q1: Andy. What does “wonky” mean?

A1: Think “policy wonk” someone who gets all data-heavy and into the deep technical details to do policy analysis. So it is used to warn the reader that only those really interested in details need to read on.

Q2: Ryan. Let’s assume the economy already works with full capacity, and the government would like to maintain it without any further inflation or deflation. Does the government now have to make an educated guess (regarding the exogenous part of the government deficit) what the nongovernment saving desire might be so that it (government) fulfills its goal (full employment and price stability)? Kind of trying to hit a moving target? And in this regard, is the employer of last resort (ELR) governmental program kind of “shoot and forget” mechanism, which automatically, always finds, or helps to find the moving target (non-government saving desire)?

A2: No, not really. Let us say the government puts in place the ELR and twenty million show up for work. Before the program was in place, everyone was worried about the future – paying bills, losing jobs, et cetera. Net private financial saving desires were, say, $1 trillion. No one wanted to spend. Now, with twenty million new jobs and the certainty that you can find one reduces the saving desires. You go shopping. You feed your family. The private sector starts hiring, producing. GDP starts growing. You get recruited out of the employer of last resort (ELR) program into a hiring, paying private-sector job. You pay more taxes. Federal government spending on ELR falls, its budget deficit falls into line with the lower net financial saving desires. The only planning you need by government is the “real stuff” – create jobs. Government does not need to try to hit the net saving desires – that is done automatically.

Q3: Paolo. “this also means it is impossible for the aggregate saving of the non-government sector to be less than (or greater than) the budget deficit “Take the “greater than” option. What about a non-government sector export surplus? Wouldn’t that add net financial assets to the non-non-government sector aggregate savings above the amount generated by non-government deficits?

A3: Yes, Americans might also save in foreign currency-denominated assets – for example, UK pounds. Those can come from export surpluses. I was talking about domestic currency. But you are correct, in some countries, the net saving desire could largely take the form of foreign currency (for example, in places where US Dollars are desired).

Q4: Guest. Professor Wray, On page 7 of “Waiting for the Next Crash: The Minskyan Lessons We failed to Learn” (http://www.levyinstitute.org/p …), you said Goldman Sachs let hedge fund manage Henry Paulson design sure-to-fail synthetic CDO’s. Did you mean John Paulson? If I’m not mistaken, Henry Paulson was Secretary of Treasury during the Global Financial Crisis (GFC) … Just checking, because I’m sure John Paulson wants his credit for being one of the world’s premier **s****s.

A4: Yes a helpful editor added the wrong first name. I think it is now corrected.

Q5: MamMoth, Dale, Neil, Samuel. Many questions and comments on exogenous vs endogenous.

A5: In economics, the distinction between endogenous and exogenous is used in three different senses: control, theoretical, and statistical. Only the econometricians reading this care about the last one so I’ll leave it. In the control sense, it means the government can “control” the variable: that is, control the money supply, control the interest rate, control the price level. MMT shares with the “endogenous money” or “horizontalist” approaches the view that the Central Bank (CB) can not control the money supply or bank reserves. Instead, the CB must accommodate the demand for reserves. HOWEVER, these theories were formulated back when the interest rate paid on reserves was zero but the Federal Reserve’s target overnight interest rate was nonzero. Excess reserves drove the market (fed funds) rate below zero so the Federal Reserve (Fed) would have to drain reserves by selling Treasuries. But now the Fed has a near-zero interest rate target (like Japan) and so can leave excess reserves in the system and pay 25 basis points (bp) on them and the market rate remains near 25 basis points. So you could say that with Quantitative Easing (QE) the Fed “exogenously” increases bank reserves. There is an asymmetry, though, because the Fed can leave banks full of excess reserves but cannot leave them short of reserves – which would drive the market rate above the target. On the other hand, the CB’s target interest rate is clearly exogenous in the control sense: the Fed can set its target at 25 bp, or raise it at the next meeting to 150 bp. Finally, the control sense and the theoretical sense are related but not identical. Let us say the US had a fixed exchange rate and used the interest rate policy to hit the peg. We can say the interest rate is exogenously controlled (set by the Fed) but it is not theoretically exogenous because the overriding policy is to peg the exchange rate.

http://neweconomicperspectives.org/2011/10/budget-deficits-and-saving-reserves-and-2.html

Wray: MMT Primer – Blog #20

Effects of Sovereign Government Budget Deficits on Saving, Reserves and Interest Rates, (continued)

by L Randall Wray

http://neweconomicperspectives.org (October 16 2011)

Complications and Private Preferences

There are often two objections to the claim that government spending effectively takes place by simultaneously crediting the recipient’s bank account as well as the bank’s reserves:

1. It must be more complicated than this; and

2. What if the private sector’s spending and portfolio preferences do not match the government’s budget outcome?

The first of these objections has been carefully dealt with in a long series of published articles and working papers (by Bell [aka Kelton], Bell and Wray, Wray, Fullwiler, and Rezende who look at actual operating procedures in the US, Canada, and Brazil; I’ll provide references later as well as more details). In practice, the treasury cannot directly credit bank accounts when it wants to spend.

Rather, a complex series of steps is required that involve the treasury, the central bank, and private banks each time the treasury spends or taxes. The central bank and the treasury develop such procedures to ensure that government is able to spend, that taxpayer payments to treasury do not lead to bounced checks, and – most importantly – that undesired effects on banking system reserves do not occur. While the end result is exactly as described above (treasury spending leads to bank credits, taxes lead to debits, and budget deficits mean net credits to both demand deposits and bank reserves), it is more complicated.

This often generates another question: what if the central bank refused to cooperate with the treasury? The answer is that the central bank would miss its overnight interest rate target (and eventually would endanger the payments system because checks would start bouncing). Readers are referred to the substantial literature surrounding the coordination (more details for the wonky coming up in a later blog). Nonspecialists can be assured that the simple explanation above is sufficient: the conclusion from close analysis is that government deficits do lead to net credits to reserves, and if undesired excess reserves are created they are drained through bond sales to maintain the central bank’s target interest rate.

The operational impact of bond sales is to substitute government bonds for reserves – it is like providing banks with a savings account at the central bank (government bonds) instead of a checking account (central bank reserves). This is done to relieve downward pressure on the overnight interest rate.

With regard to the second objection, we first must notice that if the government’s fiscal stance is not consistent with the desired saving of the nongovernment sector, then spending and income adjust until the fiscal outcome and the nongovernment sector’s balance are consistent. For example, if the government tried to run a deficit larger than the desired surplus of the nongovernment sector, then some combination of higher spending by the nongovernment sector (lower nongovernment saving and lower budget deficit), greater tax receipts (thus lower budget deficit and lower saving), or higher nongovernment sector income (so greater desired saving equal to the higher deficit) is produced.

Since tax revenues (and some government spending) are endogenously determined by the performance of the economy, the fiscal stance is at least partially determined endogenously; by the same token, the actual balance achieved by the nongovernment sector is endogenously determined by income and saving propensities. By accounting identity (presented above) it is not possible for the nongovernment’s balance to differ from the government’s balance (with the sign reversed – one has a deficit and the other a surplus); this also means it is impossible for the aggregate saving of the nongovernment sector to be less than (or greater than) the budget deficit.

So, those are the general responses to those objections. I will do a wonky blog later with more details. But next week we look in more detail at the private saving decision.

http://neweconomicperspectives.org/2011/10/mmp-blog-20-effects-of-sovereign.html

Huawei Planning “Extensive” US Layoffs

by Tyler Durden

Zero Hedge (July 14 2019)

Huawei Technologies Co is expected to slash hundreds of jobs at a US-based R&D subsidiary, according to The Wall Street Journal.

The “extensive” layoffs will affect workers at Futurewei Technologies, which employs around 850 people at labs across the country, including California, Texas, and Washington State.

The exact number of layoffs couldn’t be determined, but one of the people said they were expected to be in the hundreds. Some of Huawei’s Chinese employees in the US were being given the option of returning home and staying with the company, another person said.

– The Wall Street Journal

Following the May 16 decision by the Commerce Department to place Huawei on its so-called “entity list”, which blocks companies from supplying US-sourced technology to Huawei without a license, Futurewei employees have faced difficulties communicating with their China-based colleagues. The company employs over 180,000 people worldwide.

Huawei has been virtually unable to buy critical US components and software for its telecommunications products – including smartphones and cellular base stations which are sold worldwide. Last year alone the company bought $11 billion worth of US tech. It is the largest maker of telecommunications equipment in the world, and the #2 vendor of smartphones – ahead of Apple but behind Samsung.

Analysts say the entity listing poses the most serious threat to Huawei given its reliance on American chips and other technology. Huawei founder Ren Zhengfei said last month that the measure would cost Huawei $30 billion in lost revenue this year and next. And the company’s international smartphone sales fell forty percent in the month after the blacklisting was announced, though the decline has since moderated. Huawei had more than $100 billion in revenue last year, according to its annual report.

– The Wall Street Journal

Under the Commerce Department’s entity listing, “any unlicensed transfer of any technology of any sort by anyone from the US to Huawei is prohibited” according to Obama-era Commerce Department official Kevin Wolf.

Meanwhile, Huawei is also battling a pair of US indictments on charges related to the theft of Intellectual Property (IP) as well as violations of US sanctions on Iran.

That said, while US officials have been lobbying global allies to similarly blacklist Huawei, it appears that the Trump administration may relax some of the restrictions in order to move trade negotiations forward with Beijing.

A reprieve for Huawei appeared to be in sight after President Trump said at the Group of Twenty summit at Osaka, Japan, last month that he would allow some tech exports to the company to resume. Beijing sees an easing of restrictions on Huawei as a precondition for any trade deal with Washington.

On Tuesday, Commerce Secretary Wilbur Ross said the US would begin granting export licenses to Huawei suppliers whose sales to the Chinese company don’t put national security at risk. Meanwhile, Treasury Secretary Steven Mnuchin has been urging US suppliers to apply for licenses.

– The Wall Street Journal

The United States claims that Huawei and its widely-used technologies could easily be used by the Chinese government for espionage. The company has pushed back on the claim, insisting that it is an independent company with no government ties.

Last week, journalist and Asia expert Isaac Stone Fish wrote in Washington Post Op-Ed that more than one Huawei executive have direct ties to the People’s Liberation Army (PLA).

Huawei writes on its website. “Ren joined the People’s Liberation Army (PLA) Engineering Corps in 1974 and retired nine years later in 1983″. It omits Huawei’s many other links to the PLA, such as how the company built the PLA’s first nationwide communications network in the late 1990s.

…

Consider chief legal officer Song Liuping, who has emerged as the defender of Huawei’s innocence in both the US legal system … a search in Chinese-language media reveals that Song received his bachelor’s, master’s, and PhD from the People’s Liberation Army National University of Defense Science and Technology.

…

Song is not the only top official with undisclosed ties to the PLA. Huawei’s website lists the company’s chairman, Liang Hua, as having received his doctorate from the school now known as the Wuhan University of Technology. Liang received his bachelor’s and master’s from the Chinese military research institute the Northwestern Polytechnical University (NPU), according to an article on that university’s website. That website also shows that Yu Chengdong, the chief executive of one of Huawei’s three business units, Huawei Consumer BG, received his bachelor’s from NPU …

…

Imagine the outcry if Google’s Eric Schmidt had received his bachelor’s from West Point but hid that in his bio, or if Google declined to admit that it had ever worked with the Pentagon?

– The Washington Post

Huawei has also fended off claims that the Chinese government has a financial interest in the company. In April, a report from Fullbright University Vietnam and George Washington Law School titled “Who Owns Huawei” suggests “Regardless of who, in a practical sense, owns and controls Huawei, it is clear that the employees do not”.

In response, Huawei held a press conference in which Chief Secretary of the Board of Directors, Jiang Xisheng, said “Most of what the US government says is not true”, adding “Regarding this point, we have responded many times. Though it is not under my charge, one thing is for sure – there is no government capital in Huawei.”

https://www.zerohedge.com/news/2019-07-14/huawei-planning-extensive-us-layoffs

A Drastic Re-Organization of Everyday Life in America Looms

by James Howard Kunstler

Kunstler.com (July 15 2019)

Zero Hedge (July 15 2019)

What Looms Behind

Don’t hold your breath waiting for a coherent pre-election debate about the mother-of-all-issues facing this republic, namely, that we can’t afford the living arrangements Americans think of as “normal” anymore. This quandary has stalked us since the millennium turned. It thunders through all the activities of daily life, and the tensions emanating from it are so agonizing and difficult to face that our politics have deflected off into the kind of hysteria spawned by bad dreams.

As the great Wendell Berry pointed out years ago, this is about the nation’s home economics: energy and resources in, production out, surplus wealth saved. America had a brush with reality in 2008 when all the distortions of our home economics came together and whapped the country between the eyes with a two-by-four. Our energy-in was faltering. US oil production had fallen to a new low of under four million barrels a day and we were importing around fifteen million. We papered over the problem with borrowed money in ever-larger amounts. This dynamic prompted ever riskier workarounds on Wall Street, especially “innovations” in securitized debt, which invited criminal shenanigans. It blew up badly. Wealth vaporized. Industries collapsed. Homes and jobs were lost. Lives ruined.

The fairy-tale narrative since then is that technology rode to the rescue. The shale oil miracle “solved” the energy-in problem. Sure seems like it. But lots of things aren’t what they seem to be. Shale oil was a neat stunt. Turns out you can produce a helluva lot of it by paying more to pull it out the ground than you get from selling it. You can goose the process nicely by paying for it with borrowed money. And so it has gone. America now produces a new record of over twelve million barrels a day, and most of the companies doing it can’t make a red cent. And since it is increasingly obvious that they won’t ever pay back the money they borrowed before, they are unlikely to get new loans to continue their profitless operations.

Notice how rapidly shale oil production shot up after 2008. It’s worth a peek at analyst Steve St Angelo’s latest essay on shale oil company debt to understand just how this stunt worked: https://srsroccoreport.com/finance-costs-are-killing-the-shale-industry/

As blogger Tim Morgan at Surplus Energy Economics points out, the dis-economics of energy production – and shale oil in particular – are stealthily damaging everyday life:

… the world economy is already suffering from these effects, and these have prompted the adoption of successively riskier forms of financial manipulation in a failed effort to sustain economic “normality”.

That tells you exactly why the stock markets are at record highs now, along with US oil production.

What the nation doesn’t get is that the shale oil industry is sure to collapse, and at least as rapidly as it shot up. So, expect the stock markets to collapse with it, along with tremendous collateral damage to all the other instruments that represent “money” – bonds, currencies, and their derivatives. It will make the 2008 episode look like a mere overturned poker table when it happens. In the meantime, many of the activities enabled by the oil industry are wrecking the planet, not just CO2 emissions, but the plastics and chemical industries especially. So, the oil quandary bites at both ends: damned if it quits on us and damned if it keeps going.

That’s the main issue of our time. We’re faced with the imminent and rather drastic re-organization of everyday life in America without oil. It should be reasonable to assume that the process will be disorderly, and the longer we ignore it, the more disorderly it will be. Granted, it is a tall order for politicians to talk about things this scary. The hard truth is that intelligent responses to this quandary would require heroic effort and painful change – and would probably be emotionally unacceptable to voters.

It would entail the dismantling of suburbia and all of the activities associated with it, a severe shrinking of government at every level, the abandonment of most of our military playthings and overseas commitments, a wholesale overturning of Agri-Biz as currently practiced (along with a transition to smaller-scale farming with a much higher percentage of the population working at it), and a stupefying aggregate loss of perceived wealth.

I’m describing events that go far beyond the common understanding of political revolution – though these discontinuities will surely produce political and social strife of a high order. This mega-issue and its spinoffs are what looms behind all the pitiful political comedy of the moment, especially the incendiary buffooneries of race and “gender”.

Ponder this as you read the latest New York Times sponsored melodramas about “white supremacy” and the unfair pay in women’s soccer tournaments.

https://www.zerohedge.com/news/2019-07-15/drastic-re-organization-everyday-life-america-looms